The new fiduciary rule that was supposed to go into effect in April 2017 is the subject of a proposed delay and potential reversal that has much of the financial-advising industry in limbo. The Trump administration wants the Department of Labor to delay implementation of the rule for further analysis, but advocates say delaying or reversing the rule would harm investors who want to avoid unnecessarily high fees.
The fiduciary rule in question requires that financial advisors act in investors’ best interests. In other words, a financial advisor should steer an investor toward funds that would benefit the investor most, rather than steering the investor toward funds that would benefit the advisor or that were merely “suitable,” or good enough. The rule makes all financial advisors “fiduciaries,” which are advisors who have to meet much tougher standards.
The financial advisor industry reaction has been mixed. Some advice firms have welcomed the rule and have spent a good amount of time bringing their firms into compliance. Others have argued that the rule goes too far, places too much of a burden on individual advisors, increases the chances of lawsuits regarding investment performance, and upsets commission-fee payment structures that many advisors relied on.
The rule was created because many advisors were convincing investors that the best retirement funds for them were ones that had very high fees. So investors were spending all this money on those fees — that contributed to the commissions paid to the advisors — instead of putting that money away for retirement. The point of the rule was to make those advisors find funds that gave the most benefit to the investor, rather than those funds that paid the advisor the most in commissions.
The Trump administration wants the Department of Labor to re-analyze the rule to ensure that it doesn’t create a burden for the advisors. Part of this order includes a 6-month delay in implementing the rule.
An advantage to delaying or cancelling the rule is, as one financial advisor noted, that those firms who were already complying with the rule could use that as a marketing lure. What better way to grab a potential investor’s attention than to emphasize that your advising firm works in the investor’s best interest?
The drawback of a delay, of course, would be that investors would have to continue to be very careful about taking financial advisors’ advice, double-checking that the suggested funds really were the best for investment, rather than the advisors’ commissions.
This situation continues to change daily as advocates try to prevent a delay while the administration continues to demand one. As things stand now, it would benefit financial advisors to continue to comply with the rule, if only because it’s better customer service to work in a client’s best interest.